**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30, 2005**

 

**Commission File No. 1-13453**

 
| **CRUZAN INTERNATIONAL, INC.**                                              |
|-----------------------------------------------------------------------------|
| (Exact name of registrant as specified in its charter)                      |
|                                                                        |   |   |
| **DELAWARE**                                                                | ** ** | **59-1284057** |
| (State or other jurisdiction of                                             |   | IRS Employer Identification No. |
| incorporation or organization)                                              |   |   |
|                                                                        |   |   |
| **222 Lakeview Avenue, Suite 1500, West Palm  Beach, FL**              | ** ** | **33401** |
| (Address of principal executive offices)                                    |   | (Zip Code) |
|                                                                        |   |   |
| Registrant’s telephone number, including area code: **(561) 655-8977** |

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months, and (2) has beensubject to such filing requirements for the past 90 days.

 
| Yes | ý | No | o |
|-----|--------|----|---|

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 
| Yes | o | No | ý |
|-----|---|----|--------|

 

The number of shares outstanding of registrant’s Common Stock, $.01 parvalue per share, as of August 9, 2005 was 6,747,306.

 

 

----

 

CRUZANINTERNATIONAL, INC.

 

INDEX

 
| PART I  | FINANCIAL INFORMATION |                                                                                                                |
|--------------|-----------------------|---------------------------------------------------------------------------------------------------------------------|
|         |                  |                                                                                                                |
|         | Item 1                | Financial Statements                                                                                                |   |
|         |                  |                                                                                                                |   |
|         |                  | Consolidated Balance  Sheets -  June 30, 2005 (unaudited) and September 30, 2004                          | 1 |
|         |                  |                                                                                                                |   |
|         |                  | Consolidated  Statements of Operations -  Nine Months and Three Months Ended June 30, 2005 and 2004, unaudited | 3 |
|         |                  |                                                                                                                |   |
|         |                  | Consolidated  Statements of Cash Flows -  Nine Months Ended June 30, 2005 and 2004, unaudited                  | 4 |
|         |                  |                                                                                                                |   |
|         |                  | Notes to  Consolidated Financial Statements                                                                         | 6 |
|         |                  |                                                                                                                |   |
|         | Item 2                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 11 |
|         |                  |                                                                                                                |   |
|         | Item 3                | Quantitative and  Qualitative Disclosures About Market Risk                                                         | 20 |
|         |                  |                                                                                                                |   |
|         | Item 4                | Controls and Procedures                                                                                             | 20 |
|         |                  |                                                                                                                |   |
| PART II | OTHER INFORMATION     |                                                                                                                |
|         |                  |                                                                                                                |   |
|         | Item 1                | Legal Proceedings                                                                                                   | * |
|         |                  |                                                                                                                |   |
|         | Item 2                | Unregistered Sales of Equity Securities and Use of Proceeds                                                         | * |
|         |                  |                                                                                                                |   |
|         | Item 3                | Defaults Upon Senior Securities                                                                                     | * |
|         |                  |                                                                                                                |   |
|         | Item 4                | Submission of Matters to a Vote of Security Holders                                                                 | * |
|         |                  |                                                                                                                |   |
|         | Item 5                | Other Information                                                                                                   | * |
|         |                  |                                                                                                                |   |
|         | Item 6                | Exhibits                                                                                                            | 22 |
|         |                  |                                                                                                                |   |
|         | Signatures            | 23                                                                                                                  |

 

----

* Item is omitted because answer is negative or item is inapplicable.

 

----

 

CRUZAN INTERNATIONAL, INC.

CONSOLIDATEDBALANCE SHEETS

 
| ** **                                                 | ** ** | **June 30,** | ** **  | **September 30,** | ** ** |
|------------------------------------------------------------|------------|-------------------|-------------|------------------------|------------|
| ** **                                                 | ** ** | **2005**          | ** **  | **2004**               | ** ** |
| ** **                                                 | ** ** | **(Unaudited)**   | ** **  | *****                  | ** ** |
| ASSETS                                                     |       |              |        |                   |       |
|                                                       |       |              |        |                   |       |
| CURRENT  ASSETS                                            |       |              |        |                   |       |
| Cash and  cash equivalents                                 |       | $                 | 1,969,992   |                   | $          | 3,617,582 |   |
| Short-term  investments                                    |       | 218,351           |        | 216,246                |       |
| Trade  receivables                                         |       | 22,056,903        |        | 17,970,125             |       |
| Other  receivables                                         |       | 2,955,963         |        | 2,448,611              |       |
| Inventories                                                |       | 31,905,359        |        | 29,162,496             |       |
| Notes  receivable, current maturities                      |       | 527,443           |        | 3,559,409              |       |
| Deferred  income taxes                                     |       | 1,521,000         |        | 981,000                |       |
| Other  current assets                                      |       | 3,104,289         |        | 3,195,781              |       |
| Total  current assets                                      |       | 64,259,300        |        | 61,151,250             |       |
|                                                       |       |              |        |                   |       |
| LONG-TERM  INVESTMENTS AND RECEIVABLES                     |       |              |        |                   |       |
| Investments  in and advances to equity investees           |       | 2,563,129         |        | 2,232,285              |       |
| Notes  receivable from affiliates, less current maturities |       | 375,000           |        | 375,000                |       |
| Notes  receivable, less current maturities                 |       | 335,207           |        | 411,060                |       |
|                                                       |       | 3,273,336         |        | 3,018,345              |       |
|                                                       |       |              |        |                   |       |
| PROPERTY AND  EQUIPMENT                                    |       | 98,490,205        |        | 96,666,655             |       |
| Less  accumulated depreciation                             |       | 59,735,478        |        | 56,716,805             |       |
|                                                       |       | 38,754,727        |        | 39,949,850             |       |
|                                                       |       |              |        |                   |       |
| GOODWILL                                                   |       | 20,524,404        |        | 20,524,404             |       |
| TRADEMARKS                                                 |       | 838,831           |        | 893,648                |       |
| DEFERRED  LOAN COSTS                                       |       | 356,966           |        | 634,910                |       |
| DEFERRED  INCOME TAXES                                     |       | 1,413,500         |        | —                 |       |
| OTHER ASSETS                                               |       | 2,218,737         |        | 1,660,219              |       |
|                                                       |       | $                 | 131,639,801 |                   | $          | 127,832,626 |   |

 

----

*From audited financial statements.

 

See Notes to Consolidated Financial Statements.

 

----

 

CRUZAN INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                                                                       | ** ** | **June 30,** | ** **  | **September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|------------------------|------------|
| ** **                                                                                                                                                       | ** ** | **2005**          | ** **  | **2004**               | ** ** |
| ** **                                                                                                                                                       | ** ** | **(Unaudited)**   | ** **  | *****                  | ** ** |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                                       |       |              |        |                   |       |
|                                                                                                                                                             |       |              |        |                   |       |
| CURRENT  LIABILITIES                                                                                                                                             |       |              |        |                   |       |
| Current  maturities of long-term debt                                                                                                                            |       | $                 | 27,100,000  |                   | $          | 4,000,000 |   |
| Accounts  payable                                                                                                                                                |       | 14,212,839        |        | 11,868,947             |       |
| Accrued  expenses                                                                                                                                                |       | 3,835,292         |        | 4,726,253              |       |
| Total  current liabilities                                                                                                                                       |       | 45,148,131        |        | 20,595,200             |       |
|                                                                                                                                                             |       |              |        |                   |       |
| LONG-TERM  DEBT, less current maturities                                                                                                                         |       | 21,774            |        | 25,674,240             |       |
|                                                                                                                                                             |       |              |        |                   |       |
| DEFERRED  INCOME TAXES                                                                                                                                           |       | —            |        | 648,000                |       |
|                                                                                                                                                             |       |              |        |                   |       |
| OTHER  LIABILITIES                                                                                                                                               |       | 1,285,598         |        | 1,091,248              |       |
|                                                                                                                                                             |       | 46,455,503        |        | 48,008,688             |       |
|                                                                                                                                                             |       |              |        |                   |       |
| STOCKHOLDERS’  EQUITY                                                                                                                                       |       |              |        |                   |       |
| Preferred  stock, par value $.01 per share; authorized 2,500,000 shares; no shares  issued                                                                       |       | —            |        | —                 |       |
| Common  stock, par value $.01 per share; authorized 10,000,000 shares; issued  6,846,506 shares June 30, 2005 and 6,437,719 shares September 30,  2004 |       | 68,465            |        | 64,377                 |       |
| Additional  paid-in capital                                                                                                                                      |       | 34,451,041        |        | 28,916,707             |       |
| Retained  earnings                                                                                                                                               |       | 51,402,572        |        | 51,580,634             |       |
|                                                                                                                                                             |       | 85,922,078        |        | 80,561,718             |       |
| Less cost of  99,200 shares of treasury stock                                                                                                                    |       | (737,780          | )           | (737,780               | )          |
|                                                                                                                                                             |       | 85,184,298        |        | 79,823,938             |       |
|                                                                                                                                                             |       | $                 | 131,639,801 |                   | $          | 127,832,626 |   |

 

----

*From audited financial statements.

 

See Notes to Consolidated Financial Statements.

 

2

----

 

CRUZAN INTERNATIONAL, INC.

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(Unaudited)

 
| ** **                                    | ** ** | **Nine Months Ended  June 30,** | ** ** | **Three Months Ended  June 30,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                    | ** ** | **2005**                             | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Sales                                         |       | $                                    | 97,352,138 |                                  | $          | 88,954,982 |   | $ | 35,367,382 |   | $ | 32,537,957 |   |
| Less excise  taxes                            |       | 19,856,067                           |       | 18,988,128                            |       | 7,575,138 |   | 7,052,598 |   |
| Net sales                                     |       | 77,496,071                           |       | 69,966,854                            |       | 27,792,244 |   | 25,485,359 |   |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Cost of  goods sold                           |       | 51,607,060                           |       | 46,094,983                            |       | 18,833,850 |   | 17,519,481 |   |
| Gross profit                                  |       | 25,889,011                           |       | 23,871,871                            |       | 8,958,394 |   | 7,965,878 |   |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Selling,  general and administrative expenses |       | 27,038,436                           |       | 23,109,709                            |       | 9,879,545 |   | 9,479,264 |   |
| Operating  income (loss)                      |       | (1,149,425                           | )          | 762,162                               |       | (921,151 | ) | (1,513,386 | ) |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Other income  (expense):                      |       |                                 |       |                                  |       |   |   |   |   |
| Interest  income                              |       | 283,438                              |       | 433,395                               |       | 96,867 |   | 73,164 |   |
| Interest  expense                             |       | (2,010,217                           | )          | (1,958,351                            | )          | (645,876 | ) | (551,933 | ) |
| Equity in  income of equity investee          |       | 330,844                              |       | 425,993                               |       | 168,691 |   | 76,370 |   |
| Other, net                                    |       | 74,428                               |       | 404,681                               |       | 8,563 |   | 111,110 |   |
|                                          |       | (1,321,507                           | )          | (694,282                              | )          | (371,755 | ) | (291,289 | ) |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Income  (loss) before income taxes            |       | (2,470,932                           | )          | 67,880                                |       | (1,292,906 | ) | (1,804,675 | ) |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Income tax  expense (benefit):                |       |                                 |       |                                  |       |   |   |   |   |
| Current                                       |       | 308,630                              |       | (2,548,928                            | )          | 188,962 |   | (1,848,169 | ) |
| Deferred                                      |       | (2,601,500                           | )          | 871,500                               |       | (1,225,500 | ) | 268,000 |   |
|                                          |       | (2,292,870                           | )          | (1,677,428                            | )          | (1,036,538 | ) | (1,580,169 | ) |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Net income  (loss)                            |       | $                                    | (178,062   | )                                     | $          | 1,745,308 |   | $ | (256,368 | ) | $ | (224,506 | ) |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Earnings  (loss) per common share:            |       |                                 |       |                                  |       |   |   |   |   |
| Basic                                         |       | $                                    | (0.03      | )                                     | $          | 0.31 |   | $ | (0.04 | ) | $ | (0.04 | ) |
| Diluted                                       |       | $                                    | (0.03      | )                                     | $          | 0.30 |   | $ | (0.04 | ) | $ | (0.04 | ) |
|                                          |       |                                 |       |                                  |       |   |   |   |   |
| Common  shares and equivalents outstanding:   |       |                                 |       |                                  |       |   |   |   |   |
| Basic                                         |       | 6,351,995                            |       | 5,620,427                             |       | 6,378,948 |   | 5,647,782 |   |
| Diluted                                       |       | 6,351,995                            |       | 5,737,336                             |       | 6,378,948 |   | 5,647,782 |   |

 

See Notes to Consolidated Financial Statements.

 

3

----

 

CRUZANINTERNATIONAL, INC.

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(Unaudited)

 
| ** **                                                                                           | ** ** | **Nine Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                           | ** ** | **2005**                            | ** ** | **2004** | ** ** |
|                                                                                                 |       |                                |       |   |   |
| CASH FLOWS  FROM OPERATING ACTIVITIES                                                                |       |                                |       |   |   |
| Net income  (loss)                                                                                   |       | $                                   | (178,062   | ) | $ | 1,745,308 |   |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                |       |   |   |
| Depreciation                                                                                         |       | 3,595,884                           |       | 3,966,232 |   |
| Amortization  of trademarks and other assets                                                         |       | 64,666                              |       | 30,150 |   |
| Amortization  of deferred loan costs                                                                 |       | 386,944                             |       | 225,000 |   |
| (Gain) loss  on sale of property and equipment                                                       |       | 26,492                              |       | (267,997 | ) |
| Equity in  income of equity investees                                                                |       | (330,844                            | )          | (425,993 | ) |
| Deferred  income taxes                                                                               |       | (2,601,500                          | )          | 871,500 |   |
| Changes in  assets and liabilities:                                                                  |       |                                |       |   |   |
| (Increase)  decrease in:                                                                             |       |                                |       |   |   |
| Receivables                                                                                          |       | (4,594,130                          | )          | 1,072,554 |   |
| Inventories                                                                                          |       | (2,742,863                          | )          | (2,986,544 | ) |
| Other  current assets                                                                                |       | 91,493                              |       | (1,510,689 | ) |
| Increase  (decrease) in:                                                                             |       |                                |       |   |   |
| Accounts  payable                                                                                    |       | 2,343,892                           |       | 1,856,934 |   |
| Accrued  expenses                                                                                    |       | (890,961                            | )          | (2,357,002 | ) |
| Other  liabilities                                                                                   |       | 194,350                             |       | (933,064 | ) |
| Net cash  provided by (used in) operating activities                                                 |       | (4,634,639                          | )          | 1,286,389 |   |
|                                                                                                 |       |                                |       |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES                                                                |       |                                |       |   |   |
| Proceeds  from sale of property and equipment                                                        |       | 21,990                              |       | 503,591 |   |
| Principal  payments received on notes receivable                                                     |       | 3,107,819                           |       | 86,709 |   |
| Purchase of  property and equipment                                                                  |       | (2,449,243                          | )          | (3,956,717 | ) |
| (Purchase)  redemption of short-term investments                                                     |       | (2,105                              | )          | 1,603,601 |   |
| Increase in  other assets                                                                            |       | (568,367                            | )          | (512,659 | ) |
| Net cash  provided by (used in) investing activities                                                 |       | $                                   | 110,094    |   | $ | (2,275,475 | ) |

 

4

----

 
| ** **                                           | ** ** | **Nine Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                           | ** ** | **2005**                            | ** ** | **2004** | ** ** |
|                                                 |       |                                |       |   |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES                |       |                                |       |   |   |
| Net  borrowings (payments) on line of credit         |       | $                                   | 600,000    |   | $ | (18,750,000 | ) |
| Issuance of  common stock                            |       | 5,538,421                           |       | 10,138,999 |   |
| Disbursements  for loan costs                        |       | (109,000                            | )          | (67,500 | ) |
| Principal  payments on long-term borrowings          |       | (3,152,466                          | )          | (3,102,305 | ) |
| Net cash  provided by (used in) financing activities |       | 2,876,955                           |       | (11,780,806 | ) |
|                                                 |       |                                |       |   |   |
| Net decrease  in cash and cash equivalents           |       | (1,647,590                          | )          | (12,769,892 | ) |
|                                                 |       |                                |       |   |   |
| Cash and  cash equivalents:                          |       |                                |       |   |   |
| Beginning                                            |       | 3,617,582                           |       | 14,918,605 |   |
| Ending                                               |       | $                                   | 1,969,992  |   | $ | 2,148,713 |   |
|                                                 |       |                                |       |   |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION   |       |                                |       |   |   |
| Cash  payments (refunds) for:                        |       |                                |       |   |   |
| Interest                                             |       | $                                   | 1,564,173  |   | $ | 1,987,668 |   |
| Income taxes                                         |       | $                                   | 304,999    |   | $ | (1,339,140 | ) |

 

See Notes to Consolidated FinancialStatements.

 

5

----

 

CRUZAN INTERNATIONAL, INC.

 

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.   Basis of Presentation

 

The consolidated financial statements included herein havebeen prepared by the Company, without audit, pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America have beencondensed or omitted pursuant to such rules and regulations.  In the opinion of management, alladjustments, consisting only of normal recurring adjustments necessary for afair presentation of the financial information for the periods indicated, have beenincluded.  For further informationregarding the Company’s accounting policies, refer to the consolidatedfinancial statements and related notes included in the Company’s Annual Reporton Form 10-K for the year ended September 30, 2004.

 

The Company appliesAccounting Principles Board Opinion Number 25, *Accountingfor Stock Issued to Employees* (“APB 25”) and related interpretationsin accounting for options granted, which requires compensation expense for theCompany’s options to be recognized only if the market price of the underlyingstock exceeds the exercise price on the date of grant.  Accordingly, the Company has not recognizedcompensation expense for its options granted after 1994.  Statement of Financial Accounting Standards (“SFAS”)No. 123, *Accounting for Stock-BasedCompensation*, issued in October 1995, requires pro formadisclosures for option grants made after December 31, 1994, whenaccounting for stock-based compensation plans in accordance with APB 25.  As of January 1, 2003, the Companyadopted SFAS 148, *Accounting for Stock-BasedCompensation-Transition and Disclosure*, an amendment of SFAS 123.The standard amends SFAS 123 to provide alternative methods of transition forvoluntary changes to the fair value based method of accounting for stock-basedemployee compensation. Additionally, SFAS 148 amends the disclosurerequirements of SFAS 123 to require pro-forma disclosures when the intrinsicvalue method continues to be used.  TheCompany has elected to continue accounting for stock-based compensation usingthe intrinsic method in accordance with APB 25, and has adopted the newdisclosure requirements specified under SFAS 148.

 

If the Company had elected to recognize compensation costbased on the fair value of the options granted at grant date as prescribed bySFAS No. 123, net income and earnings per common share would have beenreduced to the pro forma amounts show below:

 
| ** **                                     | ** ** | **Periods Ended June 30,** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **Nine Months**                 | ** ** | **Three Months** | ** ** |
| ** **                                     | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                           |       |                            |       |   |   |   |   |   |   |
| Net income  (loss), as reported                |       | $                               | (178,062   | ) | $ | 1,745,308 |   | $ | (256,368 | ) | $ | (224,506 | ) |
| Compensation  costs, net of taxes              |       | 235,136                         |       | 42,034 |   | 235,136 |   | — |   |
| Net income  (loss), pro forma                  |       | (413,198                        | )          | 1,703,274 |   | (491,504 | ) | (224,506 | ) |
| Earnings  (loss) per common share, as reported |       |                            |       |   |   |   |   |   |   |
| Basic                                          |       | (0.03                           | )          | 0.31 |   | (0.04 | ) | (0.04 | ) |
| Diluted                                        |       | (0.03                           | )          | 0.30 |   | (0.04 | ) | (0.04 | ) |
| Earnings  (loss) per common share, pro forma   |       |                            |       |   |   |   |   |   |   |
| Basic                                          |       | (0.07                           | )          | 0.30 |   | (0.08 | ) | (0.04 | ) |
| Diluted                                        |       | (0.07                           | )          | 0.30 |   | (0.08 | ) | (0.04 | ) |
|                                                |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

On February 24, 2005, the Company’sCompensation Committee granted options to purchase 549,000 shares of theCompany’s common stock to officers and other key employees of the Company.

 

6

----

 

Note 2.   Inventories

 

The major components of inventories are:

 
| ** **                  | ** ** | **June 30, 2005** | ** ** | **September 30, 2004** | ** ** |
|-----------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **(Unaudited)**        | ** ** | ** **                  | ** ** |
|                        |       |                   |       |                        |       |
| Finished  goods             |       | $                      | 18,296,490 |                        | $          | 15,155,035 |   |
| Work in  process            |       | 1,855,541              |       | 2,668,698                   |       |
| Raw  materials and supplies |       | 11,753,328             |       | 11,338,763                  |       |
|                        |       |                   |       |                        |       |
|                        |       | $                      | 31,905,359 |                        | $          | 29,162,496 |   |

 

Note 3.   Financing Arrangements

 

Long-term debt consists of the following as of June 30, 2005:

 
| Term loans  under a credit agreement (i) (ii), interest payable monthly based on  either the Eurodollar or prime rate at the Company’s option, plus an  applicable margin as defined in the agreement. The interest rate at June 30,  2005 was 6.76%. Future minimum quarterly principal installments of $1,000,000  through December 31, 2005 with any remaining balance due  January 31, 2006. |   | $          | 25,000,000 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   |       |       |
| Revolving  loans under a credit agreement (i), interest payable quarterly based on  either the Eurodollar or prime rate at the Company’s option, plus an  applicable margin as defined in the agreement. The blended interest rate at  June 30, 2005 was 6.175%. The revolving lines of credit terminate on January 31,  2006.                                                                             |   | 2,100,000  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   |       |       |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 21,774     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 27,121,774 |       |
| Less current  maturities                                                                                                                                                                                                                                                                                                                                                                                                  |   | 27,100,000 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $          | 21,774     |   |

 

(i)                                     InOctober 2001, the Company entered into a $70 million credit agreement,consisting of a $40 million term loan and a $30 million revolving loanfacility.  In March 2004, therevolving loan facility was reduced to $15 million.  In June 2004, the credit agreement wasmodified to extend the maturity date of the revolving loan facility to September 2006.  In December 2004, the Company received awaiver of its financial covenants compliance requirement for the quarters endedSeptember 30, 2004 and December 31, 2004.  The financial covenant requirements were also amendedprospectively in accordance with the Company’s business plan for fiscal 2005and the maturity of the credit agreement was modified to January 31, 2006,at which time the final principal payment plus accrued interest will bedue.  Currently, the Company isconsidering its alternatives with respect to refinancing its existing creditagreement, including refinancing with an asset based facility during thequarter ending December 31, 2005, although there is no assurance that itwill be able to do so.

 

In August 2005,the credit agreement was modified to approve the prospective change in controlof the Company from Angostura, Limited to V&S Vin & Sprit AB (“V&S”)and the Company received a waiver of its fixed charge coverage financialcovenant for the quarter ended June 30, 2005.

 

(ii)                                  In addition to quarterly principal payments,the Company may be required to make additional principal payments based onresults of the Company’s domestic operating profits, as defined in the creditagreement.

 

7

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Note 4.   Earnings (Loss) PerCommon Share

 

Basic earnings (loss) per common share are calculated by dividing netincome (loss) by the average common shares outstanding.  On a diluted basis, shares outstanding areadjusted to assume the exercise of stock options.  

 
| ** **                                                                                            | ** ** | **Periods Ended June 30** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                            | ** ** | **Nine Months**                | ** ** | **Three Months** | ** ** |
| ** **                                                                                            | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                  |       |                           |       |   |   |   |   |   |   |
| Net income  (loss)                                                                                    |       | $                              | (178,062   | ) | $ | 1,745,308 |   | $ | (256,368 | ) | $ | (224,506 | ) |
| Determination  of shares:                                                                             |       |                           |       |   |   |   |   |   |   |
| Weighted  average number of common shares outstanding                                                 |       | 6,351,995                      |       | 5,620,427 |   | 6,378,948 |   | 5,647,782 |   |
| Shares  issuable on exercise of stock options, net of shares assumed to be purchased  out of proceeds |       |                           | *     | 116,909 |   |   | * |   | *  |
| Average  common shares outstanding for diluted earnings per share computation                         |       | 6,351,995                      |       | 5,737,336 |   | 6,378,948 |   | 5,647,782 |   |
|                                                                                                  |       |                           |       |   |   |   |   |   |   |
| Earnings  (loss) per common share:                                                                    |       |                           |       |   |   |   |   |   |   |
| Basic                                                                                                 |       | $                              | (0.03      | ) | $ | 0.31 |   | $ | (0.04 | ) | $ | (0.04 | ) |
| Diluted                                                                                               |       | $                              | (0.03      | ) | $ | 0.30 |   | $ | (0.04 | ) | $ | (0.04 | ) |

 

----

*The effect of stock options has notbeen included, as their effect would have been anti-dilutive.

 

The Company’s Virgin Islandssubsidiary, through the Economic Development Commission of the Government ofthe Virgin Islands of the United States, has received a 90% exemption fromincome taxes on operating income.  Thisexemption is effective through September 2020.  The per share effect of this exemption onearnings (on a diluted basis) was to increase earnings per share by $0.15 and$0.04 for the nine and three months ended June 30, 2005, respectively, and$0.19 and $0.06 for the nine and three months ended June 30, 2004,respectively.

 

Note 5.   Segment andGeographical Information

 

The Company operates primarily in thebeverage alcohol industry in the United States. The Company reports its operating results in four segments:

 

BulkAlcohol Products (rum, citrus brandy, citrus spirits, cane spirits, fortifiedcitrus wine, purchased distilled products and byproducts)

PremiumBranded Spirits (primarily Cruzan Estate Rums and Cruzan Flavored Rums)

BottlingOperations (contract bottling services and proprietary and private labelproducts)

Vinegarand Cooking Wine (bulk vinegar, bulk cooking wine, vinegar stock andproprietary and private label case goods)

 

The Company’s executive offices arelocated in West Palm Beach, Florida and certain of the expenses of the Company’sexecutive offices are classified as Corporate Operations and are not allocatedto the operating segments described above. These expenses include salaries and related expenses, legal andprofessional fees, rent for office space, utilities and insurance.

 

The accounting policies of the reportable segments are thesame as those referred to in Note 1 to the consolidated financial statementslocated in Item 8 of the Company’s Annual Report on Form 10-K for the yearended September 30, 2004.  TheCompany evaluates the performance of its operating segments based on incomebefore income taxes, equity in income or loss of equity investees, interestincome and interest expense. Material intersegment sales and transfers havebeen eliminated.

 

8

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Net sales and operating income (loss) for the Company’sreportable segments for the nine and three months ended June 30, 2005 and2004, were as follows:

 
| ** **                   | ** ** | **Periods Ended June 30,** | ** ** |
|------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **Nine Months**                 | ** ** | **Three Months** | ** ** |
| ** **                   | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                   | ** ** | **(in thousands)**              | ** ** | **(in thousands)** | ** ** |
| **Net  Sales**               |       |                            |       |   |   |   |   |   |   |
| Bulk Alcohol  Products       |       | $                               | 29,793     |   | $ | 27,024 |   | $ | 10,191 |   | $ | 9,898 |   |
| Premium  Branded Spirits     |       | 23,734                          |       | 18,708 |   | 9,819 |   | 7,184 |   |
| Bottling  Operations         |       | 8,381                           |       | 8,799 |   | 3,128 |   | 3,252 |   |
| Vinegar and  Cooking Wine    |       | 15,588                          |       | 15,436 |   | 4,654 |   | 5,151 |   |
|                         |       | $                               | 77,496     |   | $ | 69,967 |   | $ | 27,792 |   | $ | 25,485 |   |
|                         |       |                            |       |   |   |   |   |   |   |
| **Operating  Income (Loss)** |       |                            |       |   |   |   |   |   |   |
| Bulk Alcohol  Products       |       | $                               | 8,048      |   | $ | 8,386 |   | $ | 1,767 |   | $ | 2,195 |   |
| Premium  Branded Spirits     |       | (4,863                          | )          | (4,669 | ) | (1,520 | ) | (2,781 | ) |
| Bottling  Operations         |       | (2,949                          | )          | (2,445 | ) | (749 | ) | (723 | ) |
| Vinegar and  Cooking Wine    |       | 1,897                           |       | 2,539 |   | 515 |   | 915 |   |
| Corporate  Operations        |       | (3,282                          | )          | (3,049 | ) | (934 | ) | (1,119 | ) |
|                         |       | $                               | (1,149     | ) | $ | 762 |   | $ | (921 | ) | $ | (1,513 | ) |

 

Note 6.  Supplemental Executive Retirement Plan

 

During the second quarter offiscal 2004, the Company’s Compensation and Stock Option Committee approved asupplemental executive retirement plan for certain key executives of theCompany.  The plan is an unfunded planwithin the meaning of SFAS No. 132 *EmployersDisclosures about Pensions and Other Post Retirement Benefits*.  The net periodic benefit cost for the nineand three months ended June 30, 2005 and 2004, was as follows:

 
| ** **                 | ** ** | **Periods Ended June 30,** | ** ** |
|----------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **Nine Months**                 | ** ** | **Three Months** | ** ** |
| ** **                 | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost               |       | $                               | 203,408    |   | $ | 88,055 |   | $ | 70,005 |   | $ | 66,041 |   |
| Interest  cost             |       | 17,805                          |       | 5,283 |   | 8,400 |   | 3,962 |   |
|                       |       |                            |       |   |   |   |   |   |   |
| Net periodic  benefit cost |       | $                               | 221,213    |   | $ | 93,338 |   | $ | 78,405 |   | $ | 70,003 |   |

 

Note 7.  Income Taxes

 

The Company incurred losses forincome tax purposes from its U.S. operations of $5.6 million and $7.0 millionthrough each of its third quarter of 2005 and 2004, respectively.  The Company has recorded an income taxbenefit in the Company’s consolidated statement of income and an asset on theCompany’s consolidated balance sheet.

 

Note 8.  Reclassification of Cost of Goods Sold

 

In the first quarter of fiscal 2005,the Company changed the classification of certain expenses from cost of goodssold to selling, general and administrative as a result of a review andimprovement in its financial reporting practices.  The Company has reclassified its prior yearstatement of income to reflect the new classification.  This resulted in the reclassification of$1,516,366 and $590,214 from cost of goods sold to selling, general andadministrative expenses for the nine and three months ended June 30, 2004,respectively.

 

9

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Note 9.  Name Change

 

On May 2,2005, the Company announced that it had changed its name from TodhunterInternational, Inc. to Cruzan International, Inc.  The new name, approved by the Company’sshareholders on March 15, 2005, reflects the Company’s evolving strategicfocus on its Cruzan Rum brand, which has continued to experience tremendousgrowth since its repositioning in the marketplace in the late 1990s.  In conjunction with its new corporateidentity, on May 3, 2005, the Company’s common stock began trading on the American Stock Exchange under the new symbol, “RUM.”

 

Note 10.  Issuance of Common Stock

 

In June 2005,the Company received $5.5 million, net of expenses, from a fully subscribedrights offering and as a result issued 408,787 shares of common stock.

 

Note 11.  Change of Control and Merger Agreement

 

On June 3,2005, the Company announced that Angostura, Ltd. (“Angostura”), the Company’scontrolling stockholder, had entered into a Stock Purchase Agreement withV&S Vin & Sprit AB, the Swedish-based international wine andspirits company (“V&S”), pursuant to which V&S agreed to purchaseAngostura’s controlling interest in the Company.  Upon the terms and subject to the conditionsset forth in the Stock Purchase Agreement, V&S agreed to purchase all4,294,583 shares of the Company’s common stock beneficially owned by Angostura,representing approximately 63.6% of the Company’s outstanding common stock, foran aggregate consideration of $121,837,320, or $28.37 per share.  The Stock Purchase Agreement is subject tonormal closing conditions, including the approval of the board of directors ofthe Company.  In connection with suchapproval and any other related issues, the Company’s board of directors hasappointed a Special Committee of independent directors (the “Special Committee”).  The purchase and sale is expected to close onor before September 30, 2005.

 

On July 8,2005, the Company announced that The Absolut Spirits Company, Inc., aDelaware corporation (“ASCI”), a wholly-owned subsidiary of V&S, hadsubmitted a proposed Agreement and Plan of Merger pursuant to which awholly-owned subsidiary of ASCI would merge with and into the Company, and eachissued share of Company common stock not owned by Angostura would be convertedinto the right to receive $28.37 in cash (the “ASCI Proposal”).  The ASCI Proposal is conditioned upon, amongother things, receipt of appropriate stockholder and regulatory approvals.

 

TheCompany’s board of directors and its Special Committee consisting solely ofindependent directors intend to evaluate the ASCI Proposal in a mannerconsistent with their fiduciary duties. The Company cannot assure that the ASCI Proposal will result in adefinitive agreement with ASCI, or that any merger under such a definitiveagreement will be consummated.  If theCompany’s board of directors determines that the terms of the ASCI Proposal arefair to Company stockholders, and enters into a definitive agreement with ASCI,the Company will call a Special Meeting of its stockholders and file a proxystatement and other relevant documents concerning the ASCI Proposal with theSecurities and Exchange Commission.

 

On July 21,2005, the Company announced that pursuant to the Hart-Scott-Rodino AntitrustImprovements Act, the U.S. Federal Trade Commission and the U.S. Department ofJustice have granted clearance for the proposed acquisition by ASCI ofcontrolling interest in the Company from Angostura at a price of $28.37 pershare, pursuant to the Stock Purchase Agreement between Angostura andV&S.  The Stock Purchase isconditioned upon, among other things, receipt of certain regulatory approvals,including approval by certain state alcoholic beverage commissions.

 

10

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**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Forward-Looking Statements**

 

Management’sDiscussion and Analysis contains “Forward-Looking Statements,” as defined in section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. Forward-Looking Statements are statements other than historicalinformation or statements of current condition and relate to future events orthe future financial performance of the Company.  Some Forward-Looking Statements may beidentified by use of such terms as “believes,” “anticipates,” “intends” or “expects.”  Such Forward-Looking Statements involve knownand unknown risks, uncertainties and other factors that may cause the actualresults, performance or achievements of the Company to be materially differentfrom any future results, performance or achievements expressed or implied bysuch Forward-Looking Statements.  Forinformation concerning these factors and related matters, see “Risks that May AffectFuture Results” in Item 7, and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of the Company’s Annual Reporton Form 10-K for the fiscal year ended September 30, 2004.  The Company undertakes no obligation toupdate or revise any Forward-Looking Statements, whether as a result of newinformation, future events or otherwise.

 

**Introduction**

 

Thefollowing discussion and analysis summarizes the significant factors affecting (i) consolidatedresults of operations of the Company for the nine months ended June 30,2005 compared to the nine months ended June 30, 2004, (ii) consolidatedresults of operations of the Company for the three months ended June 30,2005 compared to the three months ended June 30, 2004, and (iii) financialliquidity and capital resources.  Thisdiscussion and analysis should be read in conjunction with the Company’sconsolidated financial statements and notes thereto included herein.  Certain amounts presented in this Item 2 havebeen rounded to the nearest thousand or hundred thousand, as applicable, butthe percentages calculated are based on actual amounts without rounding.

 

Marketshare and industry data and rankings disclosed in this report have beenobtained from industry and government publications, as indicated; the Companyhas not independently verified this information, although management believessuch data and rankings to be reasonably accurate.

 

Managementbelieves that the Company is the largest supplier of bulk rum in the UnitedStates based on reports of U.S. Imports for Consumption prepared by theDepartment of Census and that the Company’s market share of bulk rum productsin the United States is approximately 80%. Management believes that the Company is the largest supplier offortified citrus wine in the United States and is not aware of any otherdomestic suppliers of fortified citrus wine. Management is aware of only one other United States manufacturer ofcitrus brandy and citrus spirits and believes that the Company’s market sharefor these products is approximately 85%.

 

TheCompany’s primary spirits brand is Cruzan Rum, which is the fourth-largestpremium rum brand in the United States according to statistics published byImpact Databank and Adams Liquor Handbook, two leading spirits industrypublications.

 

TheCompany’s higher margin cooking wine products are sold throughout the UnitedStates and Canada.  Although publisheddata is not available, management is not aware of any competitors of theCompany’s size and believes that the Company is the largest supplier of cookingwine in the United States.

 

TheCompany operates primarily in the beverage alcohol industry in the UnitedStates.  The Company is a leadingproducer and supplier of rum, brandy, wine and spirits to other beveragealcohol manufacturers; produces, imports and markets premium branded spirits;bottles beverage alcohol and other beverages on a contract basis and under itsown labels; and produces vinegar and cooking wine.  The Company reports its operating results infour segments:  Bulk Alcohol Products(rum, citrus brandy, citrus spirits, cane spirits, fortified citrus wine,purchased distilled products and byproducts); Premium Branded Spirits(primarily Cruzan Estate Rums and Cruzan Flavored Rums); Bottling Operations(contract bottling services and proprietary and private label products); andVinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar stock andproprietary and private label case goods).

 

11

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TheCompany’s executive offices are located in West Palm Beach, Florida and certainof the expenses of the Company’s executive offices are not allocated to theoperating segments described above.  Theexpenses of the Company’s corporate operations include salaries and relatedexpenses, legal and professional fees, rent for office space, utilities andinsurance.

 

Informationregarding the net sales and operating income (loss) of each of the Company’sbusiness segments is set forth in Note 5 to the consolidated financialstatements and in Table 2 included in this Item 2.

 

TheCompany’s net sales and gross margins (gross profit as a percentage of netsales) vary depending on the mix of business among the Company’s products.  Historically, gross margins have been highestin bulk alcohol products and premium branded spirits and lower in bottlingoperations and vinegar and cooking wine operations.

 

TheCompany’s customers often purchase bulk alcohol products in significantquantities or place significant orders for premium branded spirits, contractbottling services, vinegar and cooking wine. Accordingly, the size and timing of purchase orders and productshipments can cause operating results to fluctuate significantly from quarterto quarter.  Additionally, some Companyproducts generate higher profit margins than others, and changes in the Company’sproduct mix can cause gross margins to fluctuate.  Certain aspects of the Company’s business areseasonal, with increased demand for the Company’s contract bottling servicesfrom April to October and increased production of the Company’s bulkalcohol products from November to June, corresponding to the Floridacitrus harvest.  As a result of thesefactors, the Company’s operating results may vary significantly from quarter toquarter.

 

Netsales represent the Company’s gross sales less excise taxes. Excise taxes aregenerally payable on sales of certain of the Company’s bulk alcohol productsand on all alcohol products bottled by the Company.  However, there are no excise taxes paid onsales made to customers that have tax permits. Accordingly, excise taxes may vary significantly from period to perioddepending upon the Company’s product and customer mix.

 

##### **Resultsof Operations**

##### ** **

Tables 1and 2 below set forth statement of income items as a percentage of net salesand information on net sales, gross profit (loss) and operating income (loss)by operating segment.

 

**Table1 – Statement of Income as a Percent of Net Sales**

 
| ** **                                    | ** ** | **Periods Ended June 30, (unaudited)** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                    | ** ** | **Nine Months**                             | ** ** | **Three Months** | ** ** |
| ** **                                    | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales                                     |       | 100.0                                       | %          | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of  goods sold                           |       | 66.6                                        |       | 65.9 |   | 67.8 |   | 68.7 |   |
| Gross margin                                  |       | 33.4                                        |       | 34.1 |   | 32.2 |   | 31.3 |   |
| Selling,  general and administrative expenses |       | 34.9                                        |       | 33.0 |   | 35.5 |   | 37.2 |   |
| Operating  income (loss)                      |       | (1.5                                        | )          | 1.1 |   | (3.3 | ) | (5.9 | ) |
| Interest  expense                             |       | (2.6                                        | )          | (2.8 | ) | (2.3 | ) | (2.2 | ) |
| Other  income, net                            |       | 0.9                                         |       | 1.8 |   | 1.0 |   | 1.0 |   |
| Income  (loss) before income taxes            |       | (3.2                                        | )          | 0.1 |   | (4.6 | ) | (7.1 | ) |
| Income tax  benefit                           |       | 3.0                                         |       | 2.4 |   | 3.7 |   | 6.2 |   |
| Net income  (loss)                            |       | (0.2                                        | )%         | 2.5 | % | (0.9 | )% | (0.9 | )% |

 

12

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**Table2 – Net Sales, Gross Profit (Loss) and Operating Income (Loss) by OperatingSegment**

 
| ** **                   | ** ** | **Periods Ended June 30, (unaudited)** | ** ** |
|------------------------------|------------|---------------------------------------------|------------|
| ** **                   | ** ** | **Nine Months**                             | ** ** | **Three Months** | ** ** |
| **(In  Thousands)**          | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Net  Sales**               | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bulk alcohol  products       |       | $                                           | 29,793     |   | $ | 27,024 |   | $ | 10,191 |   | $ | 9,898 |   |
| Premium  branded spirits     |       | 23,734                                      |       | 18,708 |   | 9,819 |   | 7,184 |   |
| Bottling  operations         |       | 8,381                                       |       | 8,799 |   | 3,128 |   | 3,252 |   |
| Vinegar and  cooking wine    |       | 15,588                                      |       | 15,436 |   | 4,654 |   | 5,151 |   |
|                         |       | 77,496                                      |       | 69,967 |   | 27,792 |   | 25,485 |   |
|                         |       |                                        |       |   |   |   |   |   |   |
| **Gross  Profit (Loss)**     | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bulk alcohol  products       |       | 11,378                                      |       | 12,781 |   | 2,933 |   | 3,712 |   |
| Premium  branded spirits     |       | 11,545                                      |       | 8,281 |   | 4,909 |   | 3,208 |   |
| Bottling  operations         |       | (904                                        | )          | (835 | ) | (76 | ) | (221 | ) |
| Vinegar and  cooking wine    |       | 3,870                                       |       | 3,645 |   | 1,192 |   | 1,267 |   |
|                         |       | 25,889                                      |       | 23,872 |   | 8,958 |   | 7,966 |   |
|                         |       |                                        |       |   |   |   |   |   |   |
| **Operating  Income (Loss)** | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bulk alcohol  products       |       | 8,048                                       |       | 8,386 |   | 1,767 |   | 2,195 |   |
| Premium  branded spirits     |       | (4,863                                      | )          | (4,669 | ) | (1,520 | ) | (2,781 | ) |
| Bottling  operations         |       | (2,949                                      | )          | (2,445 | ) | (749 | ) | (723 | ) |
| Vinegar and  cooking wine    |       | 1,897                                       |       | 2,539 |   | 515 |   | 915 |   |
| Corporate  operations        |       | (3,282                                      | )          | (3,049 | ) | (934 | ) | (1,119 | ) |
|                         |       | $                                           | (1,149     | ) | $ | 762 |   | $ | (921 | ) | $ | (1,513 | ) |

 

13

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Table 3below provides unit sales volume data for certain Company products.

 

**Table3 – Unit Sales Volume Data**

 
| ** **                            | ** ** | **Periods Ended June 30,** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Nine Months**                 | ** ** | **Three Months** | ** ** |
| **(In  Thousands)**                   | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Bulk alcohol  products:               |       |                            |       |   |   |   |   |   |   |
| Distilled  products, in proof gallons |       |                            |       |   |   |   |   |   |   |
| Citrus  Brandy                        |       | 985                             |       | 992 |   | 262 |   | 354 |   |
| Citrus  Spirits                       |       | 421                             |       | 110 |   | 113 |   | 55 |   |
| Rum                                   |       | 3,681                           |       | 3,575 |   | 1,286 |   | 1,351 |   |
| Cane Spirits                          |       | 288                             |       | 359 |   | 106 |   | 142 |   |
| Fortified  wine, in gallons           |       | 9,505                           |       | 8,404 |   | 3,404 |   | 3,081 |   |
| Premium  branded spirits, in cases    |       | 551                             |       | 517 |   | 209 |   | 175 |   |
| Bottling  operations, in cases        |       | 1,987                           |       | 2,289 |   | 809 |   | 878 |   |
| Vinegar                               |       |                            |       |   |   |   |   |   |   |
| Bulk, in 100  grain gallons           |       | 3,585                           |       | 3,912 |   | 1,167 |   | 1,293 |   |
| Cases                                 |       | 494                             |       | 364 |   | 142 |   | 147 |   |
| Drums, in  100 grain gallons          |       | 954                             |       | 1,193 |   | 386 |   | 543 |   |
| Cooking Wine                          |       |                            |       |   |   |   |   |   |   |
| Bulk, in  gallons                     |       | 2,075                           |       | 2,017 |   | 705 |   | 590 |   |
| Cases                                 |       | 473                             |       | 500 |   | 107 |   | 135 |   |

 

**Nine months ended June 30, 2005 compared to ninemonths ended June 30, 2004**.  Unless otherwise noted,references to 2005 represent the nine-month period ended June 30, 2005 andreferences to 2004 represent the nine-month period ended June 30, 2004.

 

*Net Sales.*Net sales were $77.5 million in 2005, an increase of10.8% from net sales of $70.0 million in 2004.

 

Netsales of bulk alcohol products were $29.8 million in 2005, an increase of 10.2%from net sales of $27.0 million in 2004. The increase in net sales resulted primarily from increased shipments ofcitrus spirits, rum and fortified wine, offset by decreased shipments of citrusbrandy and cane spirits.  The increase inshipments of citrus spirits, rum and fortified wine and decrease in shipmentsof citrus brandy and cane spirits was due in part to the timing of customerorders.  The Company’s customers oftenpurchase bulk alcohol products in significant quantities, and accordingly, thesize and timing of purchase orders and product shipments can cause operatingresults to fluctuate significantly from quarter to quarter.  In 2005, unit sales of citrus brandydecreased 0.7% compared to 2004, and the average selling price of citrus brandydecreased 3.3%.  Also in 2005, unit salesof the Company’s fortified wine products increased 13.1% compared to 2004,although the average selling price for the Company’s fortified wine decreased4.0%.  The average selling prices forfortified wine products decreased due to management lowering prices as a resultof increased competition from other producers.

 

Netsales of premium branded spirits were $23.7 million in 2005, an increase of26.9% from net sales of $18.7 million in 2004. In 2004, net sales of premium branded spirits included $0.7 million ofCruzan ready-to-drink products and other products which were discontinued.  Excluding these discontinued product sales,net sales of premium branded spirits were $23.7 million in 2005, an increase of31.8% from net sales of $18.0 million in 2004, as the premium branded spiritssegment continued its double digit growth.

 

Sales ofthe Company’s Cruzan Estate Rums and Cruzan Flavored Rums increased 30.2% in2005 compared to 2004.  Sales of CruzanEstate Rums and Cruzan Flavored Rums have increased from $2.2 million in fiscal1996 to

 

14

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$21.0million in fiscal 2004.  During thistime, the Cruzan brand has been recognized as one of the fastest growing brandsin the spirits industry by Impact Databank and Adams Liquor Handbook, twoleading beverage industry publications. In addition, the Cruzan Rums have won numerous tasting awards fromseveral prestigious beverage industry organizations, including The AmericanTasting Institute, The Beverage Tasting Institute and the San Francisco WorldSpirits Competition.  Since January 2003,several of the Company’s competitors have introduced their own lines offlavored rum products into the marketplace, which, in certain prior fiscalquarters, has negatively impacted the level of sales growth of Cruzan FlavoredRums.  Some of the Company’s competitorsin the rum and flavored rum categories have significantly greater financial andother resources than the Company, which could adversely affect the Company’ssales growth of Cruzan Estate Rums and Cruzan Flavored Rums. As a response tosuch increased competition, and in order to provide further impetus to thegrowth of Cruzan Flavored Rums, management significantly increased itsmarketing budget for fiscal 2004 in an effort to support the continued growthof the Company’s Cruzan brand, causing an increase in the operating loss forthis business segment in fiscal 2004. Management has continued to increase expenditures in fiscal 2005 toimprove brand growth.

 

Netsales of the Company’s bottling operations were $8.4 million in 2005, a decreaseof 4.8% from net sales of $8.8 million in 2004. While the unit volume of the Company’s bottling operations decreased13.2% in 2005, average unit prices increased 9.7% as a result of priceincreases to certain customers and a change in product mix.  Sales in the Company’s bottling operationshave declined in the last three fiscal years as a result of a contraction inthe ready-to-drink product category, for which the Company was a large contractbottler.  Responding to this decline, in July 2004the Company completed the partial consolidation of its bottlingoperations.  However, bottling operationsvolume did not even meet the Company’s reduced expectations for fiscal 2004,which resulted in a loss in this segment for fiscal 2004.  The Company continues to place an emphasis onthe sales effort in this segment, seeking other contract bottlingopportunities.  The Company has exploredother alternatives in its two bottling facilities, including furtherconsolidation, a partial sale and shedding less profitable product lines.  In December 2004, management decided todiscontinue production of all products in the Lake Alfred bottling plant withthe exception of one profitable bottling line that bottles vinegar, cookingwine and juices.  In January 2005,the operation of this bottling line was reduced to one shift.  At the present time, the Company has nottaken an impairment charge relating to its bottling operations as the carryingvalue of its bottling assets is less than fair value.

 

Netsales of vinegar and cooking wine were $15.6 million in 2005, an increase of1.0% from net sales of $15.4 million in 2004. In 2005, total unit sales of vinegar and cooking wine decreased 5.1%compared to 2004, although the average selling price per unit increased6.4%.  The average selling prices ofvinegar and cooking wine increased due to a combination of decreased sales oflower priced white distilled vinegar and an increase in sales of higher pricedbulk apple vinegar and vinegar case goods.

 

*Gross Profit.* Gross profit was $25.9 million in 2005, an increaseof 8.4% from gross profit of $23.9 million in 2004.  During 2005, bulk alcohol gross profitdecreased as a result of increased citrus molasses and juice concentrate rawmaterial costs as well as price concessions to fortified wine customers;premium branded spirits gross profit increased with sales; bottling operationsgross loss was comparable to 2004; and vinegar and cooking wine gross profitincreased due to an improved product mix. Gross margin decreased to 33.4% in 2005 from 34.1% in 2004 as a resultof the factors discussed above.  In thefirst quarter of fiscal 2005, the Company changed the classification of certainexpenses from cost of goods sold to selling, general and administrative as aresult of a review and improvement in its financial reporting practices.  The Company has restated its prior yearstatement of income to reflect the new classification.  This resulted in the reclassification of$1,516,366 from cost of goods sold to selling, general and administrativeexpenses for the nine months ended June 30, 2004.

 

*Selling, General and Administrative Expenses. *Selling, general and administrative expenses were$27.0 million in 2005, an increase of 17.0% from $23.1 million in 2004.  The increase was primarily attributable toincreased administrative, marketing and advertising expenses in the Company’spremium branded spirits business as the Company continues to place emphasis onthis growing business segment.  Duringfiscal 2004, the Company increased its selling, general and administrativeexpenses in its premium branded spirits segment in an effort to support thecontinued growth of the Company’s Cruzan brand. Management has continued to increase expenditures in fiscal 2005 toimprove brand growth.  Also during 2005,the Company’s corporate overhead has increased as a result of increased legaland professional fees incurred for compliance with Section 404 of theSarbanes-Oxley Act of 2002.  These costsrelate to increased compliance activities and the Company’s ongoingdocumentation, testing and improvement of its internal control systems.

 

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*Operating Income (Loss).*  Table 2 setsforth the operating income (loss) by reportable segment of the Company for 2005and 2004.  The Company’s operating losswas $1.1 million in 2005, as compared to operating income of $0.8 million in2004.  The Company’s premium brandedspirits segment had operating losses of $4.9 million in 2005 and $4.7 millionin 2004.  As a result of the factorsdescribed under “Net Sales” above, the Company’s bottling operations segmentreported an operating loss of $2.9 million in 2005 and $2.4 million in 2004.

 

*Interest Expense.*Interest expense was $2.0 million in 2005 and2004.  The Company’s borrowing rates werehigher in 2005 compared to 2004. However, higher rates were offset by slightly lower average borrowingsduring 2005.

 

*Income Tax Expense (Benefit).*During 2005 and 2004, the Companyincurred operating losses from its U.S. operations and recorded an income taxbenefit of $2.3 million and $1.7 million, respectively.  The Company’s Virgin Islands subsidiary has a90% exemption from U.S. Virgin Islands income taxes.  The exemption is effective through September 2020.  In addition, the Company benefited from theextraterritorial income exclusion in 2005 and 2004.

 

**Three months ended June 30,2005 compared to three months ended June 30, 2004**. Unless otherwise noted, references to 2005 represent the three-monthperiod ended June 30, 2005 and references to 2004 represent thethree-month period ended June 30, 2004.

 

*Net Sales.*Net sales were $27.8 million in 2005, an increase of9.1% from net sales of $25.5 million in 2004.

 

Netsales of bulk alcohol products were $10.2 million in 2005, an increase of 3.0%from net sales of $9.9 million in 2004. The increase in net sales resulted primarily from increased shipments ofcitrus spirits and fortified wine, offset by decreased shipments of citrusbrandy, cane spirits and rum.  Theincrease in shipments of citrus spirits and fortified wine was due to thetiming of customer orders.  The Company’scustomers often purchase bulk alcohol products in significant quantities, andaccordingly, the size and timing of purchase orders and product shipments cancause operating results to fluctuate significantly from quarter toquarter.  In 2005, unit sales of theCompany’s fortified wine products increased 10.5% compared to 2004, althoughthe average selling price for the Company’s fortified wine decreased 4.7%.  The average selling prices for these bulkalcohol products decreased due to management lowering prices as a result ofincreased competition from other producers.

 

Netsales of premium branded spirits were $9.8 million in 2005, an increase of36.7% from net sales of $7.2 million in 2004.

 

Sales ofthe Company’s Cruzan Estate Rums and Cruzan Flavored Rums increased 29.8% in2005 compared to 2004.  Sales of CruzanEstate Rums and Cruzan Flavored Rums have increased from $2.2 million in fiscal1996 to $21.0 million in fiscal 2004. During this time, the Cruzan brand has been recognized as one of thefastest growing brands in the spirits industry by Impact Databank and AdamsLiquor Handbook, two leading beverage industry publications.  In addition, the Cruzan Rums have wonnumerous tasting awards from several prestigious beverage industryorganizations, including The American Tasting Institute, The Beverage TastingInstitute and the San Francisco World Spirits Competition.  Since January 2003, several of theCompany’s competitors have introduced their own lines of flavored rum productsinto the marketplace, which, in certain fiscal quarters, has negativelyimpacted the level of sales growth of Cruzan Flavored Rums.  Some of the Company’s competitors in the rumand flavored rum categories have significantly greater financial and otherresources than the Company, which could adversely affect the Company’s salesgrowth of Cruzan Estate Rums and Cruzan Flavored Rums. As a response to suchincreased competition, and in order to provide further impetus to the growth ofCruzan Flavored Rums, management significantly increased its marketing budgetfor fiscal 2004 in an effort to support the continued growth of the Company’sCruzan brand, causing an increase in the operating loss for this businesssegment in fiscal 2004.  Management hascontinued to increase expenditures in fiscal 2005 to improve brand growth.

 

Netsales of the Company’s bottling operations were $3.1 million in 2005, adecrease of 3.8% from net sales of $3.3 million in 2004.  While the unit volume of the Company’sbottling operations decreased 7.8% in 2005, average unit prices increased 4.3%as a result of price increases to certain customers and a change in productmix.  Sales in the Company’s bottlingoperations have declined in the last three fiscal years as a result of acontraction in the ready-to-drink product category, for which the Company was amajor contract bottler.  Responding tothis decline, in July 2004 the Company completed the partial consolidationof its bottling operations.  However,bottling

 

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operationsvolume did not even meet the Company’s reduced expectations for fiscal 2004,which resulted in a loss in this segment for fiscal 2004.  The Company continues to place an emphasis onthe sales effort in this segment, seeking other contract bottlingopportunities.  The Company has exploredother alternatives in its two bottling facilities, including further consolidation,a partial sale and shedding less profitable product lines.  In December 2004, management decided todiscontinue production of all products in the Lake Alfred bottling plant withthe exception of one profitable bottling line that bottles vinegar, cookingwine and juices.  In January 2005,the operation of this bottling line was reduced to one shift.  At the present time, the Company has nottaken an impairment charge relating to its bottling operations as the carryingvalue of its bottling assets is less than fair value.

 

Netsales of vinegar and cooking wine were $4.7 million in 2005, a decrease of 9.7%from net sales of $5.2 million in 2004. The decrease in shipments of certain vinegar and cooking wine productswas due to the timing of customer orders. In 2005, total unit sales of vinegar and cooking wine decreased 7.5%compared to 2004, and the average selling price per unit decreased 2.4%.  The average selling prices of vinegar andcooking wine decreased due to a change in product mix.

 

*Gross Profit.* Gross profit was $9.0 million in 2005, an increase of12.5% from gross profit of $8.0 million in 2004.  During 2005, bulk alcohol gross profitdecreased as a result of decreased shipments of citrus brandy and rum and priceconcessions to fortified wine customers; premium branded spirits gross profitincreased due to increased sales; bottling operations gross loss was comparableto 2004; and vinegar and cooking wine gross profit was comparable to 2004.  Gross margin increased to 32.2% in 2005 from31.3% in 2004 as a result of changes in product mix.  In the first quarter of fiscal 2005, theCompany changed the classification of certain expenses from cost of goods soldto selling, general and administrative as a result of a review and improvementin its financial reporting practices. The Company has reclassified its prior year statement of income toreflect the new classification.  Thisresulted in the reclassification of $590,214 from cost of goods sold toselling, general and administrative expenses for the three months ended June 30,2004.

 

*Selling, General and Administrative Expenses. *Selling, general and administrative expenses were $9.9million in 2005, an increase of 4.2% from $9.5 million in 2004.  The increase was primarily attributable toincreased administrative, marketing and advertising expenses in the Company’spremium branded spirits business as the Company continues to place emphasis onthis growing business segment.  Duringfiscal 2005, the Company has increased its selling, general and administrativeexpenses in its premium branded spirits segment in an effort to support thecontinued growth of the Company’s Cruzan brand. Management has continued to increase expenditures in fiscal 2005 toimprove brand growth.

 

*Operating Income (Loss).*  Table 2 setsforth the operating income (loss) by reportable segment of the Company for 2005and 2004.  The Company’s operating losswas $0.9 million in 2005, as compared to an operating loss of $1.5 million in2004.  The Company’s premium brandedspirits segment had operating losses of $1.5 million in 2005 and $2.8 millionin 2004.  As a result of the factorsdescribed under “Net Sales” above, the Company’s bottling operations segmentreported an operating loss of $0.7 million in 2005 and 2004.

 

*Interest Expense.*Interest expense was $0.6 million in 2005 and2004.  The Company’s borrowings and rateswere slightly higher in 2005 compared to 2004 due to higher borrowings andrates.

 

*Income Tax Expense (Benefit).*During 2005 and 2004, the Companyincurred operating losses from its U.S. operations and recorded an income taxbenefit of $1.0 million and $1.6 million, respectively.  The Company’s Virgin Islands subsidiary has a90% exemption from U.S. Virgin Islands income taxes.  The exemption is effective through September 2020.  In addition, the Company benefited from theextraterritorial income exclusion in 2005 and 2004.

 

**Financial Liquidity and Capital Resources**

 

**General**

 

TheCompany’s principal use of cash in its operating activities is for labor,overhead and raw materials used in its manufacturing operations and purchasingimported products for its premium branded spirits business.  The Company’s source of liquidity hashistorically been cash flow from operations and its line of credit.  Some of the

 

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Company’smanufacturing operations are seasonal and the Company’s borrowings on its lineof credit vary during the year.

 

TheFlorida citrus harvest is generally performed during the months from November throughJune.  The majority of the Florida citrusharvest is processed as fresh fruit juice or juice concentrate.  A byproduct of citrus juice production iscitrus molasses which the Company uses as a raw material at its two Floridadistilleries to produce citrus brandy and spirits.  Due to the seasonal availability and short “shelf-life”of the citrus molasses raw material, the Company produces its estimated annualcustomer requirements during a seven-month period, and therefore, carries ahigher than normal level of inventory in relation to sales during thisseven-month period.  Generally, theCompany’s inventory level increases during this seven-month period anddecreases after the citrus harvest ends when the Company supplies its customerswith citrus brandy and spirits from inventory from July through October.

 

Thereare no federal regulations that require minimum aging to be designated rum.However, due to the Company’s high quality standards, the Company ages itsCruzan Estate Rums for two to five years and certain of the Company’s superpremium rums are aged up to twelve years. Due to the Company’s own agingrequirements, production of Cruzan Estate Rums is scheduled to meet demand twoto three years in the future. Accordingly, inventories are larger in relation to sales and totalassets than would be normal for most other businesses. Management expects tocontinue to increase the Company’s inventory of barrel aged rums to meetprojected increased sales in the future.

 

TheCompany’s contract bottling services business is seasonal.  Demand for contract bottling services ishighest from April through October. During these months the Company’s requirements increase for ingredients,glass bottles, caps, labels, packaging materials and labor.  During fiscal 2004, the Company incurredlosses from its bottling operations of $3.9 million.  Management has explored alternatives for itstwo bottling facilities, including further consolidation, a partial sale andshedding less profitable product lines. In December 2004, management decided to discontinue production ofall products in the Lake Alfred bottling plant with the exception of oneprofitable bottling line that bottles vinegar, cooking wine and juices.  In January 2005, the operation of thisbottling line was reduced to one shift.

 

Duringfiscal 2004, management increased selling, general and administrative expensesin its premium branded spirits segment in an effort to support the continuedgrowth of the Company’s Cruzan brand. Management has continued to increase expenditures in fiscal 2005 toimprove brand growth.  To the extent thatthe increased expenditures do not result in increased sales of the Cruzanbrand, the Company’s short-term liquidity may be adversely affected.  However, management actively monitors salesand expenditures on an ongoing basis, and retains the ability to adjust itslevel of expenditures in response to market conditions and in order to maintainsufficient liquidity.

 

Managementbelieves that cash provided by its operating and financing activities willprovide adequate resources to satisfy its working capital, liquidity andanticipated capital expenditure requirements for both its short-term andlong-term capital needs.

 

**Operating Activities**

 

Net cashused in operating activities in 2005 was $4.6 million, which resulted from $1.0million in net income adjusted for noncash items, less $5.6 millionrepresenting the net increase in operating assets and liabilities.

 

**Investing and Financing Activities**

 

Net cashprovided by investing activities in 2005 was $0.1 million, which resultedprimarily from principal payments received on notes receivable of $3.1 million,offset by $2.4 million of capital expenditures and a $0.6 million increase inother assets.

 

Net cashprovided by financing activities in 2005 was $2.9 million, which resultedprimarily from proceeds of $5.5 million from the issuance of common stock,offset by payments of $3.2 million of long-term debt.  In June

 

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2005,the Company received $5.5 million, net of expenses, from a fully subscribedrights offering and as a result issued 408,787 shares of common stock.

 

In October 2001,the Company entered into a $70 million credit agreement, consisting of a $40million term loan and a $30 million revolving loan facility.  In March 2004, the revolving loanfacility was reduced to $15 million.  In June 2004,the credit agreement was modified to extend the maturity date of the revolvingloan facility to September 2006.  InDecember 2004, the Company received a waiver of its financial covenantscompliance requirement for the quarters ended September 30, 2004 and December 31,2004.  The financial covenantrequirements were also amended prospectively in accordance with the Company’sbusiness plan for fiscal 2005 and the maturity of the credit agreement wasmodified to January 31, 2006, at which time the final principal paymentplus accrued interest will be due. Currently, the Company is considering its alternatives with respect torefinancing its existing credit agreement, including refinancing with an assetbased facility during the quarter ending December 31, 2005, although thereis no assurance that it will be able to do so.

 

In August 2005,the credit agreement was modified to approve the prospective change in controlof the Company from Angostura, Limited to V&S Vin & Sprit AB (“V&S”)and the Company received a waiver of its fixed charge coverage financialcovenant for the quarter ended June 30, 2005.

 

TheCompany’s total outstanding bank debt was $27.1 million as of June 30,2005, and its ratio of total debt to equity was 0.55 to 1.

 

TheCompany’s share of the undistributed earnings of the Bahamian and VirginIslands subsidiaries was approximately $43.7 million as of September 30,2004.  No provision has been made fortaxes which would result from the remittance of such undistributed earnings, asthe Company intends to reinvest these earnings indefinitely.  See Note 10 to the Company’s consolidatedfinancial statements included in the Company’s Annual Report on Form 10-Kfor the year ended September 30, 2004 for additional information on incometaxes related to these subsidiaries.

 

Based oncurrent plans and business conditions, management expects that its cash, cashequivalents, and short-term investments, together with any amounts generatedfrom operations and available borrowings, will be sufficient to meet theCompany’s cash requirements for at least the next 12 months.

 

**Effects of Inflationand Changing Prices**

 

TheCompany’s results of operations and financial condition have not been significantlyaffected by inflation and changing prices. The Company has been able, subject to normal competitive conditions, topass along rising costs through increased selling prices.

 

**Change of Control and MergerAgreement**

 

On June 3,2005, the Company announced that Angostura, Ltd. (“Angostura”), the Company’scontrolling stockholder, had entered into a Stock Purchase Agreement withV&S Vin & Sprit AB, the Swedish-based international wine andspirits company (“V&S”), pursuant to which V&S agreed to purchaseAngostura’s controlling interest in the Company.  Upon the terms and subject to the conditionsset forth in the Stock Purchase Agreement, V&S agreed to purchase all4,294,583 shares of the Company’s common stock beneficially owned by Angostura,representing approximately 63.6% of the Company’s outstanding common stock, foran aggregate consideration of $121,837,320, or $28.37 per share.  The Stock Purchase Agreement is subject tonormal closing conditions, including the approval of the board of directors ofthe Company.  In connection with suchapproval and any other related issues, the Company’s board of directors hasappointed a special committee of independent directors (the “Special Committee”).  The purchase and sale is expected to close onor before September 30, 2005.

 

On July 8,2005, the Company announced that The Absolut Spirits Company, Inc., aDelaware corporation (“ASCI”), a wholly-owned subsidiary of V&S, hadsubmitted a proposed Agreement and Plan of Merger pursuant to which awholly-owned subsidiary (“Subsidiary”) of ASCI would merge with and into theCompany, and each issued share of Company common stock not owned by Angosturawould be converted into the right to receive $28.37 in

 

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cash(the “ASCI Proposal”).  The ASCI Proposalis conditioned upon, among other things, receipt of appropriate stockholder andregulatory approvals.

 

TheCompany’s board of directors and its Special Committee intend to evaluate theASCI Proposal in a manner consistent with their fiduciary duties.  The Company cannot assure that the ASCIProposal will result in a definitive agreement with ASCI, or that any mergerunder such a definitive agreement will be consummated.  If the Company’s board of directors determinesthat the terms of the ASCI Proposal are fair to Company stockholders, andenters into a definitive agreement with ASCI, the Company will call a SpecialMeeting of its stockholders and file a proxy statement and other relevantdocuments concerning the ASCI Proposal with the Securities and ExchangeCommission.

 

On July 21,2005, the Company announced that pursuant to the Hart-Scott-Rodino AntitrustImprovements Act, the U.S. Federal Trade Commission and the U.S. Department ofJustice have granted clearance for the proposed acquisition by ASCI ofcontrolling interest in the Company from Angostura at a price of $28.37 pershare, pursuant to the Stock Purchase Agreement between Angostura andV&S.  The Stock Purchase isconditioned upon, among other things, receipt of certain regulatory approvals,including approval by certain state alcoholic beverage commissions.

 

**Critical AccountingPolicies**

 

TheCompany’s significant accounting policies are more fully described in Note 1 tothe Company’s consolidated financial statements located in Item 8 of its AnnualReport on Form 10-K for the year ended September 30, 2004.  The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets, liabilities, revenues, and expenses, and therelated disclosures of contingent assets and liabilities. Actual results coulddiffer from those estimates under different assumptions or conditions. TheCompany believes that the following critical accounting policy is subject toestimates and judgments used in the preparation of its consolidated financialstatements:

 

TheCompany has goodwill and intangible assets associated with businessacquisitions. The Company reviews these assets for impairment annually andwhenever an event occurs or circumstances change that would more likely thannot reduce the fair value of these assets below their carrying value.  If the fair value of these assets is lessthan their carrying value, then an impairment loss would be recognized equal tothe excess of the carrying value over the fair value of the asset.

 

**Off-Balance SheetArrangements**

 

TheCompany has no off-balance sheet arrangements that have or are reasonablylikely to have a current or future effect on the Company’s financial condition,changes in financial condition, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources that are material toinvestors.

 

**Item 3.    Quantitativeand Qualitative Disclosures About Market Risk**

 

Theinformation required under this Item 3 is incorporated herein by reference tothe Company’s Annual Report on Form 10-K for the year ended September 30,2004.  As of June 30, 2005, therehave been no material changes to the information provided therein.

 

**Item 4.    Controls andProcedures**

 

**Evaluation ofDisclosure Controls and Procedures**

 

TheCompany maintains disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”) that aredesigned to ensure that information required to be disclosed in the Company’sreports under the Exchange Act are recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and thatthe information is accumulated and

 

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communicatedto the Company’s management, including the Company’s Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure.  Indesigning and evaluating the disclosure controls and procedures, managementrecognized that any disclosure controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired objectives, and management was required to apply its judgment inevaluating the cost-benefit relationship of possible disclosure controls andprocedures.  The Company’s management,with the participation of the Company’s Chief Executive Officer and ChiefFinancial Officer, has evaluated the effectiveness of the design and operationof the Company’s disclosure controls and procedures as of the end of the periodcovered by this report.  Based upon that evaluation,the Company’s Chief Executive Officer and Chief Financial Officer concludedthat the design and operation of the Company’s disclosure controls andprocedures provided reasonable assurance that the disclosure controls andprocedures are effective to accomplish their objectives.

 

**Changes in InternalControl Over Financial Reporting**

 

Inaddition, management, including the Company’s Chief Executive Officer and ChiefFinancial Officer, reviewed the Company’s internal control over financialreporting (as defined in Rule 13a-15(f) under the Exchange Act), andthere have been no changes in the Company’s internal controls during the thirdquarter of fiscal 2005 that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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**PART II.  OTHER INFORMATION**

 

**Item 6.  Exhibits**

 
| 11.1   |   | Statement of Computation of Per Share Earnings (1)                                                                                                                      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                    |
| 20.1   |   | Earnings press release for the third quarter and nine  months ended June 30, 2005 (2)                                                                              |
|   |   |                                                                                                                                                                    |
| 31.1   |   | Certification of Jay S. Maltby,  Chairman, Chief Executive Officer and President, pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934 (2)      |
|   |   |                                                                                                                                                                    |
| 31.2   |   | Certification of Ezra Shashoua,  Executive Vice President and Chief Financial Officer, pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934 (2) |
|   |   |                                                                                                                                                                    |
| 32.1   |   | Certification of Jay S. Maltby,  Chairman, Chief Executive Officer and President, pursuant to 18 U.S.C.  Section 1350 (2)                                          |
|   |   |                                                                                                                                                                    |
| 32.2   |   | Certification of Ezra Shashoua,  Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350 (2)                                |

 

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(1)                                  Filed herewith and incorporatedherein by reference to Note 4 of notes to consolidated financial statements,included in Item 1 of the Company’s Quarterly Report on Form 10-Q for thequarter ended June 30, 2005.

 

(2)                                  Filedherewith.

 

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**Signatures**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
| Date: August 11, 2005 | /s/ Jay S. Maltby                                    |   |
|----------------------------|------------------------------------------------------|--------|
|                       | Jay S. Maltby                                        |
|                       | Chairman, Chief Executive Officer and President      |
|                       |                                                 |
|                       |                                                 |
| Date: August 11, 2005 | /s/ Ezra Shashoua                                    |   |
|                       | Ezra Shashoua                                        |
|                       | Executive Vice President and Chief Financial Officer |

 

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